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Business Organizations
 

Business Organizations

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    Business Organizations Business Organizations Presentation Transcript

    • SOLE PROPRIETORSHIPS,PARTNERSHIPS,CORPORATIONS &OTHER BUSINESS STRUCTURESBusiness Organizations
    • Business OrganizationsA business organization is an establishmentformed to carry on commercial enterprise
    • Types of Business OrganizationsThree main types of businesses: Sole Proprietorship Partnership CorporationThere are several forms of partnerships andcorporations.The biggest difference between all of these types ofbusiness organizations is liability (who is responsiblefor the business’s debts).
    • Sole ProprietorshipsSole proprietorships are the mostcommon form of businessorganization.Most sole proprietorships aresmall. All together, soleproprietorships generate onlyabout 6 percent of all UnitedStates sales.A sole proprietorshipsole proprietorship is a business owned andmanaged by a single individual.
    • Characteristics of ProprietorshipsMost sole proprietorships earn modest incomes.Many proprietors run their businesses part-time.
    • Advantages of Sole ProprietorshipsEase of Start-Up With a small amount of paperworkand legal expenses, just aboutanyone can start a soleproprietorship.Relatively Few Regulations A proprietorship is the least-regulated form of businessorganization.Full Control Owners of sole proprietorships canrun their businesses as they wish.They are their own bossSole Receiver of Profit After paying taxes, the owner ofsole proprietorship keeps all theprofits.Easy to Discontinue Besides paying off legalobligations, no other legalobligations need to be met to stopdoing business.Does not pay separate businessincome tax Not recognized as a separate legalentity. Owner pays only personalincome tax on profits.Sole proprietorships offer their owners many advantages:
    • The biggest disadvantage of sole proprietorships isunlimited personal liability. LiabilityLiability is the legallybound obligation to pay debts.Disadvantages of Sole ProprietorshipsDifficult to raise financial capital Personal financial resources availableis limited and banks usually don’t liketo loan money to new or very smallbusinesses.Difficult to raise human capital Difficulty of attracting qualifiedemployees because of limitedfinancial capital, may not be able topay competing wages.Proprietor often lacksmanagement experienceSize and Efficiency Because of limited capital, theproprietor may not be able to hireenough personnel or stock enoughinventory to operate businessefficiently.Sole proprietorships also lackpermanence. Whenever an owner closes shop dueto illness, retirement, or any otherreason, the business ceases to exist.
    • PartnershipsA partnershippartnership is a business jointly ownedby two or more people
    • Types of PartnershipsPartnerships fall into three categories:General Partnership Partners share equally in both responsibility andliability.Limited Partnership Only one partner is required to be a general partner,or to have unlimited personal liability for the firm.Limited Liability Partnership All partners are limited partners.
    • Advantages of PartnershipsPartnerships offer entrepreneurs many benefits.1. Ease of Start-UpPartnerships are easy to establish. There is no required partnershipagreement, but it is recommended that partners develop articles ofpartnership.2. Shared Decision Making and SpecializationIn a successful partnership, each partner brings different strengths andskills to the business.3. Larger Pool of Capital = Human CapitalEach partners assets, or money and other valuables, improve the firmsability to borrow funds for operations or expansion and attract top talent.4. TaxationIndividual partners are subject to taxes, but the business itself does nothave to pay taxes.
    • Disadvantages of PartnershipsUnless the partnership is a limited liabilitypartnership, at least one partner hasunlimited liability.General partners are bound by each other’sactions.Partnerships also have the potential forconflict. Partners need to ensure that theyagree about work habits, goals, managementstyles, ethics, and general businessphilosophies.Has limited life – when a partner dies orleaves, the partnership must be dissolved andre-organized.
    • Corporations Corporations are owned by individualstockholders. Stocks, or shares, represent a stockholder’sportion of ownership of a corporation. A corporation which issues stock to alimited a number of people is known as aclosely held corporation. A publicly held corporation buys and sellsits stock on the open market.A corporation is a form of business organizationrecognized by law as a separate legal entity havingall the rights of an individual.
    • Characteristics of CorporationsMust file a chartercharter – a government documentthat gives permission to create a corporation. States the name of the corporation, address,purpose of the business, and other features of thebusiness. Charter also specifies the number of shares ofstock, or ownership certificates in the firm.Stocks are sold to investors, calledstockholdersstockholders.The money is used to set up the corporation.If the corporation is profitable, it mayeventually pay dividendsdividends – a checkrepresenting a portion of profits.
    • Characteristics of Corporations: StockCommon StockCommon Stock Represents basic ownership of acorporation The value of one share of stock isdetermined by many factorspertaining to the company’soverall financial health andfuture production possibilities 1 share = 1 vote for each share ofstock to elect board of directors Board members direct the corporation’s business by settingbroad policies and goals.
    • Characteristics of Corporations: StockPreferred StockPreferred Stock Represents non-votingownership shares of thecorporation. These stockholdersreceive their dividendsbefore commonstockholders. If corporation goes out of business and if some property andfunds remain after all debts are settled, preferredstockholders get their investment back before commonstockholders.
    • Advantages of IncorporationAdvantages for the Stockholders Individual investors do not carryresponsibility for thecorporation’s actions. Shares of stock are transferable,which means that stockholderscan sell their stock to others formoney.Advantages for the Corporation Corporations have potential formore growth than otherbusiness forms. Corporations can borrowmoney by selling bonds. Corporations can hire the bestavailable labor to create andmarket the best services orgoods possible. Corporations have long lives.
    • Disadvantages of IncorporationCorporations are not without their disadvantages,including: Difficulty and Expense of Start-UpCorporate charters can be expensive and time consuming to establish.A state license, known as a certificate of incorporation, must beobtained. Double TaxationCorporations must pay taxes on their income. Owners also pay taxeson dividends, or the portion of the corporate profits paid to them. Loss of ControlManagers and boards of directors, not owners, manage corporations. More RegulationCorporations face more regulations than other kinds of businessorganizations.
    • Corporate CombinationsHorizontal mergers combine two ormore firms competing in the samemarket with the same good orservice.Vertical mergers combine two ormore firms involved in differentstages of producing the same good orservice.A conglomerate is a businesscombination merging more thanthree businesses that make unrelatedproducts.
    • Multinational corporations (MNCs) are largecorporations headquartered in one country that havesubsidiaries throughout the world.MultinationalsAdvantages of MNCs Multinationals benefitconsumers by offering productsworldwide. They also spreadnew technologies andproduction methods across theglobe.Disadvantages of MNCs Some people feel that MNCsunduly influence culture andpolitics where they operate.Critics of multinationals areconcerned about wages andworking conditions provided byMNCs in foreign countries.
    • A business franchisebusiness franchise is a semi-independent businessthat pays fees to a parent company in return for theexclusive right to sell a certain product or servicein a given area.Business Franchises Franchisers develop products andbusiness systems, then localfranchise owners help to produceand sell those products. Franchises allow owners a degreeof control, as well as support fromthe parent company.
    • Advantages and Disadvantages ofBusiness FranchisesAdvantages• Management training andsupport• Standardized quality• National advertising programs• Financial assistance• Centralized buying powerDisadvantages• High franchising fees androyalties• Strict operating standards• Purchasing restrictions• Limited product line
    • A cooperativecooperative is a business organization owned andoperated by a group of individuals for their shared benefit.Cooperatives Consumer Cooperatives Retail outlets owned and operated by consumersare called consumer cooperatives, or purchasingcooperatives. Consumer cooperatives sell theirgoods to their members at reduced prices. Service Cooperatives Cooperatives that provide a service, rather thangoods, are called service cooperatives. Producer Cooperatives Producer cooperatives are agriculturalmarketing cooperatives that help members selltheir products.
    • Nonprofit OrganizationsProfessional OrganizationsProfessional organizations workto improve the image, workingconditions, and skill levels ofpeople in particular occupations.Business AssociationsBusiness associations promote thebusiness interests of a city, state,or other geographical area, or of agroup of similar businesses.Trade AssociationsNonprofit organizations thatpromote the interests ofparticular industries are calledtrade associations.Labor UnionsA labor union is an organizedgroup of workers whose aim is toimprove working conditions,hours, wages, and fringe benefits.Institutions that function like business organizations, but do notoperate for profits are nonprofit organizations. Nonprofit organizationsare exempt from federal income taxes.
    • Have You Been Paying Attention?QUIZ TIME!Close your notes!Take out a blank sheet of paper, and number it 1 to 8.Next to each number, write the letter of the correctanswer for each of the following questions.No, you can’t use the notes you just took! 
    • Business Organization Quiz1. Any establishment formed to carry on commercial enterprises is a(a) partnership.(b) business organization.(c) sole proprietorship.(d) corporation.2. Sole proprietorships(a) are complicated to establish.(b) make up about 6 percent of all businesses.(c) are the most common form of business in the United States.(d) offer owners little control over operations.
    • Business Organization Quiz3. What advantage does a partnership have over a sole proprietorship?(a) The responsibility for the business is shared.(b) The business is easy to start up.(c) The partners are not responsible for the business debts.(d) The business is easy to sell.4. How is a general partnership organized?(a) Every partner shares equally in both responsibility and liability.(b) The doctors, lawyers, or accountants who form a general partnership hireothers to run the partnership.(c) No partner is responsible for the debts of the partnership beyond his or herinvestment.(d) Only one partner is responsible for the debts of the partnership.
    • Business Organization Quiz5. All of the following are advantages of incorporation EXCEPT(a) the responsibility for the business is shared(b) capital is easier to raise than in other business forms(c) corporations face double taxation(d) corporations have more potential for growth6. A horizontal merger(a) combines two or more firms involved in different stages of producing thesame good or service.(b) combines two or more partnerships into a larger partnership.(c) combines two or more firms competing in the same market with the samegood or service.(d) combines more than three businesses producing unrelated goods.
    • Business Organization Quiz7. A business franchise(a) attempts to improve the image and working conditions of people in aparticular occupation.(b) operates without the aim of profit.(c) is a semi-independent business tied to a parent company.(d) is not required to pay income taxes.8. Consumer cooperatives(a) are owned and operated by consumers.(b) provide a service, rather than a good.(c) help members sell their agricultural products.(d) pay no income tax.
    • Check Your Answers!Grade your own paper using the answers on thefollowing slides. When you’re done, hand in yourpaper to Ms. Ross-Raymond!One point per item.
    • Answers!Grade Your Own, Then Turn It In!1. Any establishment formed to carry on commercial enterprises is a(a) partnership.(b) business organization.(c) sole proprietorship.(d) corporation.2. Sole proprietorships(a) are complicated to establish.(b) make up about 6 percent of all businesses.(c) are the most common form of business in the United States.(d) offer owners little control over operations.
    • Answers3. What advantage does a partnership have over a sole proprietorship?(a) The responsibility for the business is shared.(b) The business is easy to start up.(c) The partners are not responsible for the business debts.(d) The business is easy to sell.4. How is a general partnership organized?(a) Every partner shares equally in both responsibility and liability(b) The doctors, lawyers, or accountants who form a general partnership hireothers to run the partnership(c) No partner is responsible for the debts of the partnership beyond his or herinvestment(d) Only one partner is responsible for the debts of the partnership
    • Answers5. All of the following are advantages of incorporation EXCEPT(a) the responsibility for the business is shared(b) capital is easier to raise than in other business forms(c) corporations face double taxation(d) corporations have more potential for growth6. A horizontal merger(a) combines two or more firms involved in different stages of producing thesame good or service.(b) combines two or more partnerships into a larger partnership.(c) combines two or more firms competing in the same market with the samegood or service.(d) combines more than three businesses producing unrelated goods.
    • Answers7. A business franchise(a) attempts to improve the image and working conditions of people in aparticular occupation.(b) operates without the aim of profit.(c) is a semi-independent business tied to a parent company.(d) is not required to pay income taxes.8. Consumer cooperatives(a) are owned and operated by consumers.(b) provide a service, rather than a good.(c) help members sell their agricultural products.(d) pay no income tax.